Very tough days ahead for Turkey’s new Central Bank chair

A very tough test awaits the new Central Bank head Murat Çetinkaya. Markets showed a positive reaction when the name of Çetinkaya was announced, but this stance is definitely not there to stay.

Markets had feared that an outsider with uncertain economic understanding would be appointed to the post.

You cannot say they know Çetinkaya very well, but the appointment of someone who was at least a staff member in the team of ex-chief Erdem Başçı has somewhat relieved the markets. It is not exactly known whether Çetinkaya is from Başçı’s core team, or whether or not he shares the same views, but it was a relatively relieving appointment.     

The new president will take office on April 19 and chair the Monetary Policy Council (PPK) the next day. The decision to be reached in this meeting and the statement to be issued afterward will be Çetinkaya’s first step in his tough test. I predict that this tough testing period will go on for at least six month, during which his decisions and statements will be closely monitored. 

Meanwhile, the business does not end with appointing the president. New appointments of PPK members and the deputy head post should be made. Perhaps the identities of these new appointees will not be as important as Çetinkaya, but they will be closely watched for signs of the general approach he will take. A test of the new Central Bank chief will be related to the identities of the people he will work with.

The name Çetinkaya is not well known by the markets. It is certain that his background will now be scrutinized; it is only natural that the past of a person who has been appointed to such a key position will be researched so thoroughly. 

Rate cuts 

Of course, as soon as the appointment was made, speculations began. It was said that Çetinkaya’s education was not adequate to his appointment to the deputy president post, and that there was an amendment in the law to realize this appointment. This amendment brings assumptions that he has been considered for the Bank’s top position for some time, and that President Recep Tayyip Erdoğan has appointed a name he has long considered for the chairmanship of the Central Bank. 

Of course it is not a surprise that the president has a say in this, but it is clear that markets are concerned that while he is conducting his duties as the Central Bank head he will possibly act according to Erdoğan’s economic views. This would be a worrying development in terms of the independence of the Central Bank, which has already been harmed during Başçı’s term in charge. 

As a result, the interest rate decision that the new chair will make on April 20 will be closely monitored. Markets will react normally to a 0.25-point rate cut, but if the rate cut is more than 0.50 points then concerns about the new president will start to increase. 

This period is one when caution should be observed. Making the sharp interest rate cuts desired by President Erdoğan at this time would further risk Turkey’s economic stability.